GSK Ups Legal Reserve, May Break Pfizer's Settlement Record

GlaxoSmithkline expects to record a $3.4 billion legal charge relating to a government investigation of its marketing practices and Avandia product liability suits.

GlaxoSmithkline is moving toward resolution of a government investigation of its marketing practices as it faces a wave of new Avandia (rosiglitazone) product liability suits. The two events have dealt a blow to the company's bottom line.

GSK announced on Jan. 17 that it expects to record a legal charge of $3.4 billion for the fourth quarter of 2010. GSK had recorded a charge of $2.36 billion in the second quarter to resolve several litigation matters, including Avandia personal injury suits (Also see "Ripping The Bandage Off: GSK Resolves Suits On Many Products For $2.3 Bil." - Pink Sheet, 19 Jul, 2010.).

"We recognize that this is a significant charge, but we believe the approach we are taking to resolve long-standing legal matters is in the company's best interest," PD Villarreal, GSK's senior vice president of global litigation, said in a release.

The company said the charge "primarily relates to additional provisioning" in a government investigation of its sales and promotional practices and to Avandia product liability cases. In 2004 the U.S. Attorney's Office for the District of Colorado initiated a probe into GSK's marketing of nine products. GSK announced in January 2009 that it would take a legal charge of $400 million in the fourth quarter of 2008 related to the investigation.

GSK Settlement May Break Pfizer's Record

It is unclear how much of the current charge would go toward resolving the investigation since the company does not break out the costs of individual matters. Of the $2.36 billion GSK set aside in July, $750 million went to settle a government investigation of a former manufacturing site in Cidra, Puerto Rico. If the bulk of the $3.4 billion also goes to the government, GSK might break Pfizer's record $2.3 billion agreement with the Department of Justice. That 2009 settlement resolved allegations of off-label marketing of four drugs and kickbacks involving nine other drugs.

Among other top settlements, Lilly paid $1.4 billion to resolve allegations of off-label marketing of Zyprexa (olanzapine). And Merck has established a $950 million reserve in anticipation of resolving an investigation of Vioxx (rofecoxib) (Also see "Merck To Join Pfizer and Lilly At Top of DoJ Settlements Chart" - Pink Sheet, 8 Nov, 2010.).

GSK has not said which products are under investigation by the Colorado U.S. attorney's office. Wellbutrin SR (bupropion) is likely to be on the list, however, since FDA investigated possible promotion of the antidepressant for weight loss. The DoJ has charged a former GSK lawyer with obstructing the investigation and providing false statements to FDA (Also see "DoJ Case Against GSK Lawyer Flags What Individual Behavior Government May Target" - Pink Sheet, 9 Nov, 2010.).

FDA Restrictions Boost Avandia Litigation

As for Avandia litigation, in July GSK reportedly agreed to pay $520 million to resolve about 10,700 suits. At that time 14,000 Avandia claims had been made against the company. FDA subsequently placed restrictions on Avandia marketing and the European Medicines Agency suspended marketing of the drug (Also see "FDA Keeps Avandia On The Market But Looks To RECORD For More Clarity On CV Risk" - Pink Sheet, 23 Sep, 2010.).

FDA's actions have apparently increased the company's liability. GSK "has continued to receive new product liability cases regarding Avandia in the United States," the company said. "The number of new claims received is substantial and the Group has not completed its assessment of these additional cases and an estimate of likely future claims."

Launched in 1999, Avandia had worldwide annual sales of about $3 billion before a meta-analysis of clinical trial data was released in May 2007 suggesting that Avandia might increase the risk of heart attack. From 2007 through the first nine months of 2010 the one-time blockbuster garnered total sales of $5.7 billion.

- Brenda Sandburg ([email protected])